You might learn a few things from a list of Forty Mistakes Auditors Make. If you can identify a few ways to improve your audit approach you could save time, improve the quality of your audit, and maybe reduce your risk.
Lots of auditors are in the midst of planning their year-end audits and reviews. Now would be a really good time to think about how to do better, more efficient work.
Writing at CPA Scribo, my friend Charles Hall outlines a number of goofs made by auditors. I’ll list a few tidbits in order to encourage you to read and ponder the whole list:
It takes thirty-two pages to describe the current round of disciplinary actions from the California Board of Accountancy in the Spring/Summer 2017 edition of the Update newsletter (Issue #84). By my count there are 38 actions, exclude one situation where a firm and the CPA are listed separately.
The overwhelming portion of cases are for CPAs who have an audit or review or compilation failure. Most of those firms also have a peer review problem, either not getting a peer review, failing two consecutive reviews, or getting a very late review.
Just in case you were wondering whether CPAs are regular people with the same, um, foibles as the general population, there were 7 CPAs disciplined for conviction of a crime.
I tallied the results for this edition of Update and came up with these results:
Amid the cute little kids in their funny costumes, this pleasant Halloween night there was a grown man in a suit at the door asking for candy. White shirt, red tie, gray pinstripe.
Not so scary, thought I.
(Tale of this particular night was originally posted on October 31, 2013.)
“What are you dressed up as?”
“An auditor,” came the reply.
That’s not frightening, since I’ve been an auditor for a long time. But it did explain the standard issue uniform.
So, putting on my peer reviewer hat, I asked, “what audit work do you do?”
The road we CPAs need to be on, but not all of us are… Image courtesy of Adobe Stock.
As I’ve mentioned here and here, I have reread my notes from several continuing education classes this year. Thought I would share a variety of stray ideas.
Probably need to note again that I have not gone back and read the original pronouncements supporting each idea and therefore I do not have a specific citation for you. (Reading three of the documents is the next step for my writing project.)
I should probably throw in a disclaimer. All of the comments I’m mentioning were the opinion of the presenter, not the agency from whom the person was drawing a paycheck. That is why I’m not mentioning the names of the presenters, or even the CPE event. In addition, the rephrasing of their comments is my interpretation, not their words.
Here are some tidbits you might enjoy:
More interest in Financial Reporting Framework for Small- and Medium-sized Entities (FRF-SME)?
The FRF-SME framework is a non-GAAP alternative to GAAP. It is dramatically less complicated with the promise it will not be revised more often every three years.
The Winter 2017 Update newsletter (#83) from the California Board of Accountancy shows that the board is continuing its active efforts on disciplinary actions.
There are obviously quite a few of our colleagues who are not performing up to standards.
I’ve heard stories from a distance that the Board has hired more enforcement staff. As I have read the last few issues of Update, it sure seems to me that the increased staffing is showing up in an increased pace of closed cases. Maybe my perception is off, but it seems there are more cases closed with more serious consequences in the last year or so.
I count 39 cases documented in this edition of Update. Only 2 of these have discipline level of suspension or less. All the others are surrenders, revocations, or stayed revocations. Just as a guess, I think that means the editor of Update is filtering out most of the suspensions.
I count 19 cases of those 39 with peer review problems or audit, review, or compilation failures or some combination thereof. I’ll break that down further:
Cover of free resources from AICPA, used under fair use.
Did you know the AICPA has provided a tool you may use as a starting template to develop a Quality Control document?
If you perform compilations, reviews, or audits, you are required to have a written QC document. Even if you aren’t going through a system review. Even if you only do comps.
If you perform audits and will have to go through a system review, keep in mind you are obligated to have quality control program in place before the system review starts, even before the peer review year begins. That means you really really need to have a QC document in place. (Yes, I’m talking to you, my fellow sole practitioners.)
The AICPA’s template can give you an easy starting point, in case you want to step up your policy.
There are two documents, one tailored for a sole practitioner and the other for small firms. Here are links to the documents:
If we keep learning, robots will free us up from dreary work but won’t take away our jobs
Federal court keeps PTIN requirement in place but overturns the fee requirement
PCAOB expands standard auditor’s report
5/30/17 – Bill Sheridan at Business Learning Institute – Robots aren’t stealing our jobs. They’re setting us free. – Mr. Sheridan describes how we as accountants could thrive as computers take away the basic number crunching parts of our work.
Those tasks we do that can be automated will shift. That will leave the strategic thinking, critical thinking, collaboration, communication, and anticipation to us.
In my little brain, I have a way to describe this – So let’s say you have a program that can review 100% of disbursements instead of you drawing a sample of 40 or 60 items. Cool.
In any client that still uses humans to run their organizations, how many exceptions do you know think you will need to address?
Image courtesy of Dollar Photo Club before their merger into Adobe Stock.
Here are a few articles to stretch your brain when you are ready for some mental exercise:
Is the double-entry accounting system broken?
What is the recidivism rate for white-collar criminals and how could that affect my audits?
What possible changes are on the horizon for the audit opinion?
5/17/17 – Tom Selling at The Accounting Onion – Double-Entry Accounting and Modern Times – As a real brain stretcher, consider whether our double-entry accounting system is fundamentally broken.
Work with me a minute while I highlight and summarize a few ideas from the article.
A basic concept of double-entry accounting is that debits on the left side of the balance sheet represent all the assets of the entity. This includes all of the resources that are available for the entity to use in order to make money and all the assets against which creditors have a claim.
On the credit side, liabilities represent all of the claims against the organization. The equity section represents the value that belongs to the owners.
Prof. Selling points out there’s a variety of problems with using the statement of financial position as a representation of economic reality.
He points out and then moves past the idea that not all debits are assets and not all credits are liabilities. That’s easy to understand.
More significantly is that not all assets are reflected as debits and not all liabilities are reflected as credits.
Here are a few of the comments from the May 24, 2017 Not-for-profit conference presented by California Society of CPAs that I thought would be of interest to others in the nonprofit community. Since all comments are the opinion of the speaker, neither their name nor organization will be mentioned. The ideas mentioned can stand or fall on their own.
This is the first of two posts. The next discussion will address changes in financial statement presentation outlined in ASU 2016-14. In this post: tax, revenue recognition, and single audit.
It might just be possible that filing a form 1023 or 1023-EZ is so easy that people can get exempt status for an organization without knowing the requirements to properly operate a charity and maintain exempt status. In examinations to follow-up on exempt status, the IRS is finding a lot of charities are out of compliance.
One of several focuses of the IRS is filing of FBARs, those forms used to report overseas bank accounts. One ripple effect of chasing money laundering is the impact on charities who have overseas accounts. Even though there is minimal risk of those accounts being used for tax evasion the FBAR filing requirement still apply. As a reminder, the deadline for filing FBARs is now April 15 with a six-month extension available.
I thought IFRS in the US was dead. In case you didn’t know, I have a fairly strong opinion on the issue.
A presenter at the CalCPA’s Accounting and Auditing Conference on April 25, 2017 had the following comment on IFRS at the end of the presentation:
Death, taxes, cockroaches, and IFRS aren’t going away.
My immediate thought:
Unfortunately, that now seems to be true.
IFRS is baaaack
He perceives the pendulum of discussion on IFRS is swinging back to the topic being on the table.
His comments consistently contained the inference that IFRS is one body of knowledge, consistent in its application in every country across the planet that has adopted the rules.
There is little new information on the leak from PCAOB to KPMG since the first reports.
I’m expecting to hear a lot more, most likely after PCAOB and SEC finish their investigation. If I read this situation correctly, and if public reports are correct, there will be sanctions from SEC against some of the KPMG staff. At that point, the SEC public documents will tell us a lot more.
While we wait, here are two articles that give some general background.
4/17/17 – Francine McKenna at re:The Auditors – KPMG takes its turn with a Big 4-sized scandal– If you’ve been looking for an article with a long time horizon to survey the assorted scandals in the Big 4 world, this post will give you the deep background you want.
Leak from PCAOB to KPMG
Post describes the current information that is public on the leak of inspection engagements from someone at PCAOB to someone at KPMG. Article illustrates there still is not a lot visible in the public realm to answer all the questions that come to mind.
Ms. McKenna quotes my comment earlier on the PCAOB-KPMG leak feeling to me like a red flag of something deeper. She agrees with me.
Each firm has their own round of fiascos
All the firms have had their turn of embarrassing publicity, often with fines or undisclosed settlements.
A minor update on the leak from a now-former PCAOB staffer to a now-former KPMG staffer giving advance notice of audits selected for inspection. Also, many questions come to my mind after thinking about this situation.
The KPMG representative says that KPMG discovered the issue and notified the SEC and PCAOB.
Most significant piece of new information is that the six people who left the firm were fired.
They did not resign.
Why is this significant, at least to me? In the initial reports, I saw verbs used indicating all of the following possibilities for the partner’s departure. They may have:
resigned (which means sorta’ kinda’ voluntary terminations), or
were fired (which means the firm unilaterally terminated them), or
departed (which doesn’t addressed which party made the termination decision; in other words could have been a summary firing, or truly voluntary, or under the proverbial threat of you-can-either-resign-or-I’ll-personally-throw-you-out-the-window).
At first read, I did not analyze which of the above options actually was in play. I put together all the reports I read and assumed (you know what that means) these were all forced resignations, as in “I think it’s time for you to resign.”
Other comments by the PR person confusing me are statements that the fireable offenses were possessing the leaked information or knowing others knew about it.
There is as much missing from reporting on this story as has already been made public.
Here is what I can figure out:
An employee of PCAOB leaked to someone at KPMG a list of audit engagements that were going to be inspected. Recipient of the leaked info was previously an employee at PCAOB.
Lots of stuff we don’t know happened next.
When someone told senior leadership at KPMG about this back in February, KPMG took several steps. They hired external legal staff to investigate, notified the PCAOB of the leaked info, and then fired 6 people.
Amongst the fired staff are
two named partners, including the Vice Chair of Audit (who was in charge of all audit work in the US firm) and the national managing partner for audit quality and professional practice
three other unnamed partners
one other person, whose job level and responsibilities were not identified.
The leaker at PCAOB has resigned.
What is missing from the reporting?
What happened inside KPMG between the leak and the firings is not visible in the few articles I’ve found on the incident.
